On The Brink with Castle Island - Mark Coe (Intrinsic Edge) on The View From The Public Markets (EP.670)

Episode Date: September 29, 2025

Mark Coe, the Founder and CIO of Intrinsic Edge Capital Management joins the show. In this episode we discuss: Mark's background and path that led him to founding Intrinsic Edge Capital Management. The Intrinsic Edge Digital Infrastructure Fund, a fund that was launched four years ago to focus on companies in the digital asset ecosystem. Perspectives on the mining industry and the impact of AI/LLMs on this sector of the industry. Views on the types of businesses that will enter the public markets in the coming years. The future of prime brokerage and how service providers will evolve. To learn more about Intrinsic Edge visit intrinsicedge.com or email them at [e-mail]  

Today on the podcast, I sat down with Mark Co, the founder and CIA of Intrinsic Edge Capital Management, a long-short hedge fund based in Chicago. We originally had Mark on the podcast four years ago when he launched his digital infrastructure fund, a vehicle that makes investments in public equities in the blockchain industry. And a lot has definitely changed over those last four years with many more public names and a complete evolution of the Bitcoin mining industry with the emergence of LLMs. I think you'll enjoy this conversation, so without further ado, here's Mark Coe. Matt Walsh and Nick Carter are partners at Castle Island Ventures.

All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be

liquidated. The federal government loans American Internet. National Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of quantitative easing.

You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Mark, I can't believe it's been four years since the last time you're on this podcast. Thankfully, we talk a lot in the interim, but four years. We're doing this every Olympics, it sounds like. It's uncanny, Matt. I can't believe it.

Just thinking back to what the world looked like back then versus now, obviously we're going to have a ton to talk about on the podcast. Maybe a good place to start for folks that didn't listen to the first time you were on the podcast. Let's just start with maybe a little bit background on you and what is intrinsic edge. Yeah, sure, Matt. I was raised in Chicago, background as in finance and as a CPA. In my early 20s, I developed a passion for investing, all sorts of investing. And for me, it's a hobby.

In my 30s, I launched Intrinsic Edge Capital Management, which was in the 1990s. It dates me. And Intrinsic Edge Capital Management is in the public markets. It's in equities. We run a long short domestic equity strategy. We're generalists and been doing a long time. We have several funds. And we built the firm and the team.

We've got about 20 employees, hundreds of investors, and still having a lot of fun doing it. And we cover different industries and going back four years ago, we launched this digital infrastructure strategy and look forward to talking about it today. Well, I definitely want to talk about the digital infrastructure strategy. And I guess I should disclose that I'm an investor, a happy investor in that fund. maybe just dialing back the clock on that, what was the impetus to even start the digital infrastructure fund and maybe talk a little bit about what it's been like over the past couple of years. There was a lot of enthusiasm. This goes back like five years ago where Bitcoin made its earlier run and people were trying to understand what was going on and how to invest. And

I had some curiosity. I invested in Castle Island and some other strategies, but this wasn't a discipline that I had a great understanding for. And when clients would ask me, you know, what do I think and how do I invest? I didn't have a great answer for them as I was kind of developing my understanding. But there was enough interest that I started looking into the public markets and equities that had touch store were predominantly exposed to blockchain and crypto businesses. That is a discipline I really understand. As a generalist, we, think about revenues and margins and earnings and putting evaluation on it. And for every industry that's an operating business is pretty much the same. So I had a lot of inquiries. We were doing

work in the public markets and it was really exciting. And we launched that fund in June of 2021. And you asked the kind of about the journey. As we all know, it's been a cyclical market historically, it wasn't a great time to start the fund because certainly thereafter, that meltdown had started, and Bitcoin, which was trading in the 30s, traded down to the mid-teens. And the public equities are correlated to the underlying crypto. And the equities are measured by BLLK, which is a ETF. They were down like 80% from peak to trough from 21 to 22. It wasn't a very fun time, considering we were a long bias fund. We had a monsterized. down and I was really wondering why we ever got into this. But that was the impetus. And then

things in the ecosystem bottom. And we came off of that trough with results that I'm proud of the last few years and going strong. That's an understatement to say the least on the results side. So maybe a good place to also just dive in here would be the categories of businesses that are even interesting or addressable for you. I'd imagine that a lot of these things looked like just Bitcoin mining companies in the early days. And curious what that landscape looks like now in terms of the categories of businesses that you would even evaluate an investment in. It really is interesting.

And it's really morphed into, there's been a convergence of industries between traditional businesses and blockchain infrastructure. So I'll talk in a bit more about the miners and how they've pivoted their businesses into AI. but you see this across industry sets, including asset managers and exchanges and software and payments and banking. There's crypto-focused companies that are broadening their basis into traditional aspects of their industries, and vice versa, where many companies are adopting crypto as part of their future a lot like companies are adopting. companies are adopting AI. So there's a hybrid in the addressable market relating to our fund

has gotten large. As far as companies that are predominantly Bitcoin and crypto and blockchain focus where their predominant businesses is in those realms, like that was very small when we started four plus years ago. You know, that's what makes the market so exciting today is because those companies have matured. There's been a lot of syndicate. There's been a bunch more liquidity that's unlocked in these underlying companies that's created like an amazing opportunity set for our fund. I guess the other thing is just the regulatory environment has shifted such that now the banks, the broker dealers have a little bit more clarity on what they can do. IPO window seems to be open right now, less of an overhang maybe in terms of getting a company public.

Would you say that's a factor as well? It's been a huge factor. There was such a pivot just before the election, and Trump has obviously been constructive in the industry and his family is involved privately and in the public markets. And there's been some important legislation that's helped create the clarity that the industry was looking for to make capital investments in the industry. That all has precipitated, like a ton of syndicate that we could talk about. And a lot of companies up to join the fray. The legislative handcuffs have been unlocked, and it's clear that there'll be tons of additional opportunity as legislation improves. One of the biggest things that's happening this year, I would say, at least in the venture world, there's just everyone talking about these digital asset treasury companies. And kind of surprising to me to see a lot of venture funds investing in some of these things. But what's your take on what we're seeing with these dats and curious if this is sustainable

in your eyes. I've done my best, Matt, to try to understand this business. And it resembles a lot of situations before because there's been a ton of value creation and you have to wonder why the predominant number of these companies don't have any other business other than issuing shares or leveraging up in creative ways and buying Bitcoin and other cryptocurrencies. And they've used a very inflated market valuation to do so, which has been amazing. But I'm skeptical because that really works in a sensible mind in a healthy crypto environment as far as like pricing. And at such time, we're going to get the next correction in Bitcoin and Solana and Ethereum. I'm worried that these NAVs are going to collapse in, in many cases, trade below NAV.

You're already seeing some of that because there's been such a flurry. I think Michael Saylor at a conference last week talked about the number of these companies just in Bitcoin to go from 64 at the beginning of the year to 190 by last week. 190 public companies just doing Bitcoin Treasury, which own a million Bitcoin or about 5% of everything outstanding on their balance sheets. So you're seeing a big disparity right now relating to the valuations. Some of them really haven't got out. of the box and our trading at discounts. Others still trade at 3-5, even 20 times MNAV. Very inefficient. It's a great time for us to look at arbitrage opportunities. You could buy ETFs or broken treasuries against the inflated ones, but over time I'm just concerned that I think it's about $20 billion that have been put into this space is all but a handful are likely to trade at a discount

ultimately is my concern. Yeah, I mean, if you just look at this academically, I think you'd be saying this looks like it's something that could attract activist investors. I really doubt the convert market can handle this scale of capital from some of these issuers. I'm not sure why the seventh largest coin on coin market cap needs its fourth debt. It just seems like we've saturated the market a little bit in the category. Yeah, for sure. As I mentioned, some of the discounts of collapse and others have. I've seen two deals pulled in the last week that we're on peripheral currencies.

I think there's only so much capacity that could go into the space. I would just say that, like, this whole thing, because it's blown up this year, there just isn't a lot of commitment on the by-side that I could tell because it takes an enormous amount of work to track each company, what's on their balance sheet, the shares issued, the capital structure, when the unlocks may be happening. They're using ATMs, so you don't really know how many shares are, It's outstanding.

And then you have to consider borrow rates. I was looking at borrow rates at some of these earlier this week. And the ones with unlocks range from like 100% to 500% if you get to borrow at all. So those are just nuances on the trades. And then longer term, you've got to think about the fees and the management teams and what else they may be doing this differentiated. But it's very complicated. And it's like the Wild West. I don't think anybody can be dialed on everything that's going on because it's so fluid.

I want to shift gears a little bit and talk about the Bitcoin mining space. This is historically not a space that we've really ever invested in just because of the capital intensity of the business. But obviously, a lot of these things have gone public over the past decade. So curious, just your views on where that industry was when you started the fund and then where it is today. You mentioned this was four years ago. It's like yesterday when I was trying to understand these businesses. And even then, I mean, it wasn't that forthright, but they from the outset, these are flawed, most challenged industry to compete in than I've ever come across. Building a Bitcoin mine is hugely capital intensive, and it leads to a lot of dilution to build at the outset.

And ultimately, when you know how Bitcoin rewards are allocated, you know, these miners are spending a lot of money to chase fixed rewards with increasing difficulty rates, which means the cost of each Bitcoin is more difficult and more challenging and more costly. So when I look at the group and I pulled it up recently, there was no EBITDA growth from the time we launched our fund four and a half years ago through 2024. And that's in the face of how well Bitcoin is done. So they held themselves out as Bitcoin surrogates, but have massively underperformed Bitcoin if you just invest in them directly. When you think about it prospectively, it's even worse. There's only 5% of the Bitcoin yet to be mined, and difficulty rates continue to go up. China, Russia, and Iran are goosing their output. And this is all in the face who would want to invest in more infrastructure here when you've got having in 2028, which is going to virtually wipe out the ebidah of almost all the public companies in the United States.

In my view, challenged industry, and they persevered because Bitcoin's been so strong, but their outlook for Bitcoin, profitability ban 28 is eligible. Kind of crazy to think about competing against nation states that are not economics driven. Some of these countries, you probably have someone in a government that has access to free power and is standing up a mining operation outside the purview of their government. So it's kind of scary to compete against someone like that. without question. And I always shook my head on why this would be a good business. And we had to focus on it because when we launched this was probably 50% of the market value in the crypto blockchain

ecosystem. And today it's still important, but it's been productive because we're long and short. And there's been a lot of alpha opportunities. Maybe that's a good dovetail into kind of what this looks like today, AI, HPC, I don't know if we talked about that on the podcast four years ago. I mean, the world looks a lot different today. We have chat GPT now. We have a lot of capital going into the AI space. But it seems to me, as someone that doesn't follow this every single day, that a lot of these businesses have pivoted into the AI space. Curious just what it looks like in the future here. About her to be lucky, then to be smart. And I don't know if any of them would share this directly, but I think they basically won a lifeline or lottery ticket,

like this was not contrived. And one thing that Bitcoin miners had to do well to compete was to access power and have power contracts. Some of them had the foresight to lock up significant power at attractive prices, but never did they ever think that they were going to, you know, use this for anything but Bitcoin. What's going on in the last, it's only a little over a year ago when the first deal was announced, but surging demand that we all hear about from the hyperscalers and what are called neoclouds, which are surrogates that are running these huge data centers and leasing out their GPUs, this demand has, is really insatiable in their term. Anyone, anywhere that has access to power and good land and water and with a good location for latency.

Like, it's very valuable because there's only so much of that available to be energized over the next year or so where you can, you know, actually build a data center over the next two years, say, by 2027 and be up and running. And there's only a few such sites and some of these Bitcoin miners happen to be sitting on them. And the first announcement was with CoreWeave and Course scientific a little over a year ago. Since that time, you know, there's been at least eight other significant deals. And at this point, if you look at the top 10 Bitcoin miners, the public ones, they've all pivoted to say that this direction is their future going forward or part of the future.

I visited with citizens' cell site analysts last week that focused on data centers. And I reflected on a report they wrote where there's 54 gigawatts of PowerShunds. shortfall due to the debt of center demand between now and 2030, I think that's enough to power about 25 million homes. So again, to suggest these miners were in the right place or the right time is an understatement. The models are much different. It's hugely capital, intensive, and complex. But when you sign one of these agreements, you get a setty predictable cash flow, which is a lot different and better than the uncertainty about Bitcoin volatility. Do you think that means that Bitcoin mining in the U.S. just kind of tails off to zero

and it's just uneconomic miners here? What do you think this means, I guess, more from the perspective of the Bitcoin network and where this is mined? I've given that some thought. And most of the companies I'm speaking with have either reached their run rate for their production on their exit hash or they're targeting growth, you know, maybe for the next year and then they're going to peek out. But that will be their persistent run rate until 2028. And when you do the math on the having as we have, yeah, I think most of the capacity in the U.S. will be

uneconomic and be mothball. Either it'll be run complementary as a secondary business to these companies, HPC initiatives or will just be curtailed. So I do think the way things look at the direction for Bitcoin mining in the U.S., at least for these public providers, will be meaningfully lower as we look forward into 2028 and beyond. Yeah, I guess there's other factors there around what if a fee market emerges on top of the block reward. Obviously, the price of Bitcoin factors into this. But from where we sit today, I'd say I agree with you. It's hard to imagine that if you have the opportunity to power in the HPC category, why would you be mining a Bitcoin? Without question. And you haven't asked what I'm thinking about, though, is it's a really curious

time for these companies because they've never built an HPCAI data center. And they're very complex. And this is a new initiative. So while it is kind of opaque what their futures in Bitcoin mining, there are a lot of uncertainties and execution around building a different business that these companies have not been in. That actually kind of dovetails into where I want to go next, which is just how do you differentiate these companies that started as Bitcoin miners? Like, what does it take to win in the category? In the past, I've thought that those that are ready earlier are the de facto winners.

But at the end of the day, it's really just how much power you have, how quality it is, and how soon it could be energized and how close you may be to a grid or an urban area. When I think about investing in the space, some of the participants or players have already contracted most of their megawatts. Those have been repraced higher because of the visibility of the cash flow. With that said, there's not a lot of upside to their business models over the next few years given those stocks have been revalued to kind of the way we look at at the present value of the payments once those data centers are up and running. So when we try to distinguish them, we wonder or try to discern who has those best assets,

who's most likely next in the queue to sign meaningful contracts. And I'm trying to simplify it that much. And it has really almost nothing to do with their Bitcoin businesses, believe it or not. Yeah, it just sounds like just the sensational demand for power and energy. You're seeing any indication that nuclear will be a, a solution? here that either factors into the AIHPC market or to the Bitcoin market for that matter? It's really interesting in how our digital infrastructure strategy has evolved or dovetail. But these grids have tremendous demands.

And I mentioned the shortfall. And so these utilities are being very mindful about signing new contracts. And even when you sign a contract in these AIHPC and cloud computing centers, they can't go down like a Bitcoin mining. It just really messes up all the economics. So if there's any power issues, they have to protect against. So there's generators and redundancy at every one of these facilities. But I've spent some time looking at alternative power. And, you know, it's not only nuclear. Like, you can look at some of these public companies and they've been revalued even though nuclear won't even be an opportunity, but they're taking orders for like 2030 and beyond.

But you also have to think about natural gas and pipelines. I have a call this afternoon with one of the big MLPs to discuss with them about building pipelines toward AIHPC data centers of natural gas to provide the power, either redundant or otherwise. So it's really fascinating. And in my mind, it even brings like wind and solar back into play. So all these things are fun to think about and you want to think about them proactively from an investment. standpoint because that's where the puck is going. I guess that's a really interesting point to around just the ability to sustain going down and coming back up. Because for Bitcoin mining, that is fine, right? You could shut off the miners, turn them back on. It wouldn't be the end of

the world, obviously not ideal. But for these AI-HPC use cases, that just seems like that would be a disaster. Yeah, I mean, that is my understanding. You just can't turn off these computations and turn them back on. You likely have to fix whatever it doesn't go back to month or something. So I don't even know that's being my technological prowess, but that's just one of a number of, you know, uncertainties and execution risks as we move forward here. When you think about just the risk factors and how do you analyze one business versus another, how do you underwrite the risk of getting long a certain name or getting short a certain name, what are the things that you think about? It's important to have the team. Some of these

had more foresight, these miners, and they brought on proven experts in the industry and power and the data center. Presumably their prowess to execute is going to be better than some others that are just now pivoting. But you've got to build out and learn a whole new business. So I think about the management team, their ability to finance because it's very expensive. This capax is exponentially larger than the Bitcoin miners. And, And I think about, you know, as I mentioned, power. And I think about strain on the infrastructure and those kind of risk, because, you know, whether it be the grid or water, there's going to be dislocations as demand continues to rise more than the ability to supply it. So I think about the answers I get to those type of considerations.

And then I think quite a bit about their customers and counterparty risk and risk to these deals. Because I think about these very much like real estate investment trust actually, and they may become real estate investment trust because it's really just a landlord and a tenant. And some of these tenants would never be bankable if you just looked at their balance sheets. There's these companies called NeoClouds that have been the predominant lessee of these AIHPC data centers. and they're just insatiable. This one large one has spending $23 billion in CAPEX this year needs to borrow $19 billion to fund it. And they don't really have a balance sheet,

but yet they're signing multi-billion-dollar contracts with a lot of these companies. So I just wonder what it looks like over time and do they have the fortitude to make it work and pay, even if they want to? And then when you think about these neoclouds, they're signing with their customers for four or five years, but they're signing 15-year contracts with these HBC data centers.

And, you know, that mismatch creates a lot of concern for me also. So what happens in five years? So I think a lot about the counterparty risk in one of the deals last month or even a few weeks ago was backstop by Oracle, which would give me a lot more confidence than some of these more up-and-common companies. It's unbelievable. I mean, Oracle is a name that I don't really follow. But what a story there. and some of the forecasts coming out of that business

seem to have people pretty excited just from a category perspective. What a story. It's really remarkable. $144 billion of revenues they expect in 2030 from their cloud business. That's undeniable, even though most of that's with one customer, which is also undercapitalize at the time.

But that announcement and thinking through that has informed my recent thinking on the space because there is so much demand that good company, bad company, good management, whatever your strategy outlook, if you have good power, it's clearly going to be in demand. So there's going to be general winners here. And the ones that don't have access to power, as I discussed, I think are the losers. When you think about just the broader ecosystem that you want to play in in terms of the types of businesses that will go public here over the next few years, do you segment the fund

between business models? Obviously looking at an AI data center, Bitcoin mining. company is probably going to look a lot different from a couple of years from now, you're going to have compliance software businesses in the crypto space going public. How do you toggle between the various different categories here? I think I mentioned this was kind of somewhat of the fault because it has been and still is a big part of the industry and if you define it as a blockchain industry. And over time, there's been $70 billion, I think, of companies that have gone public this year that are not minors that are in crypto and blockchain. And there's a whole list of other companies that Matt, you and I know, that are on the fringe and likely to come public. So I think

you're going to get that natural diversification into, you know, as you said, compliance and payments and software, you know, and there's more asset managers coming. So I'm looking for broader diversification. And I think from our respective, an increasing portion of the portfolio will be targeted on a lot of these public companies, some of which are clear winners and some of which are very suspect. Do you think the hedge fund industry evolves over time such that you have connectivity and the ability to trade cryptocurrency through your prime broker and maybe hedge an equity position by doing something in the liquid cryptocurrency market? How do you see just the plumbing of this working from running the business over the next few years?

Well, this isn't my area of expertise. I mean, I think like all aspects, I talked to the top of the call, there's a convergence going on. And, you know, we're evaluating our transition to a prime broker because they're at the forefront of thinking about some of those possibilities and they have plans. There's crypto-native type prime brokers and there's traditional equity prime brokers and I think they either merge or work together. And, you know, over time, I think you see these combinations being the mainstay.

There's no reason they shouldn't merge. Yeah, I think that's right. The last question on my side would just be, what's this been like culturally with the people that work at intrinsic edge and also your clients? I'd imagine the early days you had some folks that were like, what the hell is Bitcoin? Why are we spending our time here? What's it been like to grow this within the firm? It's so much fun to be in the weeds on this research, and there's a growing enthusiasm everywhere,

I think, as all the listeners know as well. And there's a lot of enthusiasm within the firm. There's a growing enthusiasm about the opportunity set, and we're getting a lot of inbounds from all different type of potential investors. And I think it's a lot of fun. I think we're in the early innings, and yeah, I'm very excited. It's a really novel strategy. and I mean, hey, look, not a lot of people have a four-year track record running public equities in this category,

and maybe you're the only person on that list. So thanks again for coming on. Great catching up. Thank you, Matt. That was a fun one. I always enjoy having Mark on the show and hearing about how the public markets are evolving for blockchain-focused companies. To learn more about Intrinsic Edge, please visit their website, www.com or email them at info at intrinsicedge.com. Thanks for listening to another episode of On the Brink with Castle Island. To learn more about Castle Island, visit castle island.vc. And to listen to all of our podcast episodes, please visit castle island.vc slash podcast or just click on the tab on our website. Thanks for listening.